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APRIL, 1997
COTTON: WORLD MARKETS AND TRADE
April 1997
This report provides the text and analysis from the
current COTTON: WORLD MARKETS AND TRADE publication.
This report draws on information from USDA's global network
of agricultural attaches and counselors, official
statistics of foreign governments, other foreign source
materials, and results of office analysis. Estimates of U.S.
acreage, yield and production are from the USDA Agricultural
Statistics Board, except where noted. This report is based
on unrounded data; numbers may not add to totals because of
rounding. The report reflects official USDA estimates
released in the World Agricultural Supply Estimates
(WASDE number 325, April 11, 1997.)
The report was prepared by the Cotton, Oilseeds, Tobacco and Seeds
Division, FAS, AGBOX 1051, 14th and Independence Ave.,
Washington, DC 20250-1000. Further information may be
obtained by writing to the division, or by calling (202)
720-9516, or by FAX (202) 690-1171.
The next issue of the Cotton circular will be available
electronically after 3:30 pm local time on May 13, 1997.
Further Information Contact:
U.S. Department of Agriculture
Foreign Agricultural Service
Cotton, Oilseeds, Tobacco, and Seeds Division
Stop 1051
1400 Independence Ave. SW
Washington, D.C. 20250-1051
Telephone -- (202) 720-9516
Fax -- (202) 690-1171
Lynn Abbott, Acting Director
Lana Bennett, Deputy Director, Analysis
Abdullah A. Saleh, Group Leader, Cotton, Tobacco, and Seeds
Analysis
Principal Contributors
Anita Regmi Cotton Analyst for Asia, Latin America & Oceania
Jon Ann Flemings Cotton Analyst for Africa, FSU, Middle East & Europe
Ada Arrington Electronic Word Processor
Ron Roberson Chairperson for Foreign Area and Production, PECAD
The United States Department of Agriculture (USDA) prohibits
discrimination in its programs on the basis of race, color,
national origin, sex, religion, age, disability, political beliefs
and marital or familial status. (Not all prohibited bases apply
to all programs). Persons with disabilities who require
alternative means for communication of program information
(braille, large print, audiotape, etc.) should contact the USDA
Office of Communications at (202) 720-2791 (voice) or (202) 720-7808 (TDD).
To file a complaint, write the Secretary of Agriculture, U.S.
Department of Agriculture, Washington, D.C., 20250, or call
(1-800) 245-6340 (voice) or (202) 720-1127 (TDD). USDA is an equal
employment opportunity employer.
Summary
World cotton production for MY 1996/97 is forecast at 88.1 million
bales, up 1.8 million bales from last month's forecast. U.S.
cotton production is forecast at 19.0 million bales, unchanged
from last month's forecast.
World cotton production for MY 1995/96 is estimated at 92.2
million bales, unchanged from last month's estimate. U.S. cotton
production in 1995/96 totaled 17.9 million bales.
World cotton consumption for MY 1996/97 is forecast at 86.6
million bales, up 335,000 bales from last month's forecast. U.S.
consumption is forecast at 11.0 million bales, unchanged from last
month's forecast.
World cotton consumption for MY 1995/96 is estimated at 85.4
million bales, up 40,000 bales from last month's estimate. U.S.
cotton consumption in 1995/96 totaled 10.6 million bales.
World cotton exports for MY 1996/97 are forecast at 26.8 million
bales, down 340,000 bales from last month's forecast. U.S.
exports are forecast at 7.0 million bales, up 200,000 bales from
last month's forecast.
World cotton exports for MY 1995/96 are estimated at 27.4 million
bales, basically unchanged from last month's estimate. U.S.
exports in 1995/96 totaled 7.7 million bales.
World cotton ending stocks for MY 1996/97 are forecast at 37.8
million bales, up 1.8 million bales from last month's forecast.
U.S. ending stocks are forecast at 4.0 million bales, down 200,000
bales from last month's forecast.
World cotton ending stocks for MY 1995/96 are estimated at 35.7
million bales, up 61,000 bales from last month's estimate. U.S.
ending stocks totaled 2.6 million bales.World Situation
World cotton production for MY 1996/97 is forecast at 88.1 million
bales, up 1.8 million bales from last month's estimate. Major
adjustments include the following:
- China's production was increased by 1.8 million bales due to
preliminary production estimates by China's State Statistical
Bureau.
- Pakistan's production was increased by 100,000 bales due to
higher yield.
World cotton production for MY 1995/96 is estimated at 92.2
million bales, basically unchanged from last month's estimate.
World cotton consumption for MY 1996/97 is forecast at 86.6
million bales, up 335,000 from last month's forecast. Increases
in the consumption forecasts for China, Pakistan, and Taiwan more
than offset decreases in the consumption forecast for Korea.
World cotton consumption for MY 1995/96 is estimated at 85.4
million bales, up 40,000 bales from last month's estimate, mainly
due to a 36,000 bale increase in Indonesia's consumption estimate.
World cotton exports for MY 1996/97 are forecast at 26.8 million
bales, basically unchanged from last month's forecast. The
increase in the export forecast for the United States was more
than offset by the decreases in the export forecasts for Pakistan,
Egypt, Hong Kong, and other countries.
World cotton exports for MY 1995/96 are estimated at 27.4 million
bales, basically unchanged from last month's estimate.
World cotton ending stocks for MY 1996/97 are forecast at 37.8
million bales, up 1.8 million bales from last month's forecast.
The increase in the ending stocks forecast for China, Pakistan,
and Egypt more than offset decreases in the ending stocks
forecasts for the United States and other countries.
World cotton ending stocks for MY 1995/96 are estimated at 35.7
million bales, up 61,000 from last month's estimate. Increases in
the ending stocks estimates for Brazil and Egypt more than offset
decreases in the ending stocks estimates for India and Indonesia.
Cotton Prices
The 1996/97 Cotlook A-Index averaged 80.63 cents/lb. during March,
up from February's average of 80.4 cents/lb. The A-Index which
began the month at 80.8 cents/lb. ended March 27 at 79 cents/lb.
The Central Asian quote was the lowest in the Index, averaging
75.31 cents/lb. During March, the California/Arizona and Memphis
Territory quotes were above the A-index by an average of 4.50
cents/lb. and 2.50 cents/lb., respectively. May 97 futures
prices on the New York Cotton Exchange declined in March. The May
contract began the month at 75.63 cents/lb. rising initially upon
expectations of a larger U.S. export forecast. However, with
continued favorable weather and reports of good progress of
Southern Hemisphere crops, futures prices declined during the
second half of the month, and closed sharply lower March 31 at
71.35 cents/lb upon larger than expected USDA 1997 forecast for
cotton planted area.
U.S. Highlights
The seasonally adjusted daily rate of U.S. cotton consumption in
February amounted to 41,531 bales (480-lb), below January's level
of 42,187 bales. A total of 851,863 bales were consumed in
February, compared with 840,067 bales in January. The seasonally
adjusted annualized consumption rate for the month of February was
10.8 million bales, down from January's 11.0 million bales.
Domestic mill purchases were generally slow during February.
Purchases were light to moderate for prompt and nearby delivery,
while a larger volume was purchased for fourth quarter 1997
through third quarter 1998 delivery. Consumer demand for textile
goods was slow. Demand for denim remained steady, while demand
for housewares, infant wear, and casual apparel was good.
Interest in sales yarn, gray cloth, and fleece was poor, and
interest in industrial fabrics was lackluster.
Cotton stocks on hand in consuming establishments during February
totaled 690,254 bales (480-lb), up from 657,879 bales in January.
Stocks held in public storage and at compresses totaled 9.1
million bales, down from 10.5 million in January. Active spindles
in place in February 1997 totaled 5.8 million, of which 2.6
million were dedicated to 100-percent cotton, compared with 6.5
million and 2.7 million, respectively, during the same period in
1996. Cotton's share on the cotton spindle system was 78 percent.
U.S. cotton exports for January totaled 666,000 bales, 26 percent
below the 899,000 bales in December, and 47 percent below January
1996 exports, according to the U.S. Bureau of the Census. The
leading markets in January were China, Indonesia, Japan, Korea,
Brazil, and Taiwan.
U.S. cotton imports for January were negligible compared with
2,000 bales in December 1996 and 3,000 bales in January 1996,
according to the U.S. Bureau of the Census.
International Highlights
Argentine and Australian Cotton Exports Boost the Southern
Hemisphere's Share
During MY 1996/97, cotton exports from the Southern Hemisphere are
expected to account for 17 percent of total world exports, up from
14 percent in 1995/96. This increase is mainly due to large
exports from Australia and Argentina, and to a lesser extent due
to increased exports from Zimbabwe and Tanzania. Cotton
production has declined in Brazil and Colombia, countries with a
growing textile sector, and increased significantly in exporting
countries. Between 1992/93 and 1996/97 cotton production
decreased by 34 and 21 percent in Brazil and Colombia
respectively, while cotton production in Australia increased by 46
percent and almost tripled in Argentina during the same period.
Brazil
To combat an increasingly unbalanced trade deficit, the Government
of Brazil has issued a Presidential Decree (Medida Provisoria),
effective April 1, which prohibits all import financing for terms
of 360 days or less for goods over U.S.$ 10,000 in value.
(Short-term financing funds two-thirds of Brazil's imports.) For
any sale financed on credit terms of up to 180 days, the decree
requires the importer to pay the Brazilian Central Bank the full
purchase price in local currency equivalent at the time of
delivery. The Central Bank will hold an equivalent dollar amount
to pay to the creditor when the payment becomes due. The importer
must continue to pay to the creditor any interest incurred. For
sales financed on credit terms between 180-360 days, the decree
requires the importer to pay the Brazilian Central Bank, in local
currency, within the first 180 days after delivery. As with the
shorter terms, the Central Bank will pay the creditor in dollars
on the due date, while importers must continue to pay creditors
any interest due. The only exceptions to this decree are imports
financed beyond 360 days, imports by the State oil monopoly
PETROBRAS, goods qualifying for drawback, goods in transit or
orders concluded prior to March 31, and orders less than $10,000
in value. As a result of this decree, Brazilian importers face a
severe squeeze on working capital and higher financing costs.
The Presidential Decree is expected to have a significant impact
on the cotton industry. Brazil, which produced 3.4 million bales
of cotton in 1991/92, is expected to produce 1.4 million bales
during 1996/97. During the same period mill use of cotton has
grown from 3.3 million bales to an estimated 4 million bales.
Given the shortfall in domestic supply, Brazil has become the
world's leading cotton importer with 1996/97's imports forecast at
2.4 million bales. According to industry analysts, this measure
will represent additional costs to the textile sector which will
not only raise the price of imported cotton by about 3 to 4
percent, but will also boost interest rates and consumer prices.
Small to medium sized firms are expected to be the most affected.
Since a large proportion of 1996/97 imports are already under
contract, little change is expected for the current marketing
year. However, future cotton imports will be affected, but the
magnitude of the impact is as yet uncertain. A few textile mills
have reportedly received authorization from the Brazilian Central
Bank to extend credit terms with foreign suppliers beyond 360
days. It is unclear, however, if similar authorizations will be
granted in the future. An extended payment period is expected to
increase the cost of import financing. Questions also remain on
how the decree will affect contracts consummated with Mercosur
member countries. Reportedly, imports from Mercosur member
countries (Argentina and Paraguay) will be granted a temporary
exemption. The exemption will permit payment up to 30 days after
delivery on shipments valued at U.S.$10,000-$40,000 which are
shipped from member countries by July 31, 1997.
U.S. cotton exports to Brazil are expected to be hampered by the
new decree as U.S. sales are often made under short-term credit
arrangements. Under current procedures, the decree affects
commodities sold under USDA's GSM-102 credit program. The United
States exported cotton valued at U.S. $81 million to Brazil during
FY 1996 of which U.S. $14 million were registered for sales under
the GSM-102 program.
India
Although tariff changes are limited, India's recently announced
1997/98 budget provides some incentives for the textile sector.
The budget has not yet been passed , but duty reductions are
already effective on a provisional basis. The new budget proposal
continues the zero import duty on cotton and the 25 percent import
duty on cotton waste and yarn. While these duties were earlier
listed as exceptions, they are now incorporated into the tariff
schedule. The budget also levies a 2 percent surcharge on all
items with duties in excess of zero. In addition, local excise
tariffs, called Countervailing Duties (CVD) are applied to the CIF
plus import duty value of imported products. While CVD's on
cotton and cotton waste are zero, a five percent CVD is charged on
cotton sewing thread. The CVD on cotton yarn has been reduced
from 20 to 18 percent. Items imported under various duty drawback
programs are duty free.
Import duties on inputs to the textile industry such as dyes,
pigments, paints and varnishes, glues, enzymes, and modified
starches are reduced from 40 percent to 30 percent. To boost
efficiency and make textile mills more competitive before
quantitative restrictions are dismantled under the Multifiber
Arrangement, import duties on components and parts of textile
machinery are lowered to 10 percent. While duty on most fibers
remains unchanged, import duty on wool is lowered from 25 to 20
percent and on acetate and flax from 30 to 20 percent.
Indonesia
Indonesian textile exports continue to grow in volume and value,
despite the increase in price due to rising production costs.
According to the Ministry of Industry and Trade, textile and
textile product exports reached approximately $6.85 billion during
CY 1996, more than a 10 percent increase from the previous year.
As a result of Indonesia's efforts to maintain and/or increase its
world market export share, the Government of Indonesia (GOI) is
estimating that the total textile exports will increase to
approximately $7.3- $7.5 billion during CY 1997. The GOI has set a
total textile and textile export target of $10 billion per year by
the end of Indonesian fiscal year 1998/99 (April-March).
Achieving the goal may prove to be a challenge to the textile
sector which is faced with high production costs and equipped with
outdated machinery. Around 60 percent of textile machines in
Indonesia are at least 16 years old, the average interest rate in
Indonesia is around 20 percent, and textile producers have to pay
10 percent Value Added Tax (VAT) for purchasing raw materials for
textile export purposes.
With a growing textile sector spurred by exports, Indonesia's mill
use of cotton has increased from less than 2 million bales in
1992/93 to a forecasted 2.2 million bales during MY 1996/97. As
Indonesia produces negligible amounts of cotton, the textile
sector's demand for cotton is met by imports. The United States
is the major cotton source for Indonesia with a sale of
approximately 762,000 bales during MY 1995/96, a decline of 17.9
percent from the 928,000 bales exported in MY 1994/95. Australia,
the second largest supplier, increased its share of the
Indonesian cotton import market from 16 percent to 21 percent,
while Pakistan's share rose from 2 percent in MY 1994/95 to 9
percent for MY 1995/96. Price considerations are seen as the
major factors affecting these changes in market share.
Russia
The Russian government's "Commission on Operative Issues" (KOV)
met at the beginning of March to discuss restructuring Russia's
light industries, particularly the stagnating textile sector.
Light industry previously produced 25-30 percent of the government
revenues, but barely produced over one percent in 1996. The
"State Committee for State Property Management" (GKI) is
reportedly considering measures such as gaining controlling shares
of insolvent textile plants and putting them up for tender.
Another proposed measure to boost the textile sector's
competitiveness is a reduction in its value-added tax (VAT).
Sixty percent of Russia's textile industry is concentrated in
Ivanovo Oblast, just northeast of Moscow. Ivanovo's economic
troubles stem from the loss of cheap cotton from central Asian
producers and the dependence on an insolvent industry (textiles
had provided approximately seventy percent of the region's
revenue). The supply of Central Asian cotton to Russia has fallen
dramatically since 1992, as the cotton producing countries of the
FSU favored sales to other countries for hard currency over barter
arrangements with Russia. FSU cotton provided to Russia is
currently being sold on commercial terms. In 1996, the Federal
Government no longer provided special credit subsidies, nor signed
any inter-FSU supply agreements. Therefore, Ivanovo authorities
are seeking alternative sources of cotton, including the United
States, and have started trade discussions with Mali and Benin.
During CY 1996, the United States sold nearly 23,000 bales of raw
cotton to Russia, the first U.S. sales to that country in nearly a
decade. Russia imported a total of 6,200,000 bales of raw cotton
during the 1990/91 marketing year. However, due to sourcing
problems and problems of the economic viability of Russian textile
industries after the break-up of the FSU, imports decreased
steadily, reaching a low of 1,467,000 bales during the 1995/96
marketing year. The KOV's attempts to restructure the light
industries combined with the availability of international credit
terms could revive the Russian textile industry. If Russia's
textile industry does revive, it could cause a major change in
world cotton trading trends.
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